{"id":3777,"date":"2016-10-03T05:24:47","date_gmt":"2016-10-03T12:24:47","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=3777"},"modified":"2016-10-03T09:46:35","modified_gmt":"2016-10-03T16:46:35","slug":"multistate-taxation","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/multistate-taxation\/","title":{"rendered":"Multistate Taxation: Avoiding Costs and Hassles"},"content":{"rendered":"

\"Picture<\/a>Last week\u2019s blog post talked about how multistate taxation works<\/a> and got into some of the nitty gritty details of nexus, public law 86-272 and then the typical multistate apportionment formulas.<\/p>\n

For purposes of this blog post, I\u2019m going to assume that you\u2019ve either read that post or know about this stuff.<\/p>\n

What we\u2019re going to do here is talk about the simple ways a small business can avoid the costs and hassles of paying taxes and filing tax returns in a bunch of different states. I’ve got seven tips for you.<\/p>\n

Multistate Taxation Tip #1: No Telecommuting Employees<\/h2>\n

Let me give you the easiest, more powerful tip to use first: Don’t hire people who work out of state.<\/p>\n

If you don\u2019t employ people in other states, you\u2019ll probably sidestep both income and excise taxes in other states.<\/p>\n

Furthermore, you will also greatly simplify your payroll processing and state unemployment and disability insurance stuff.<\/p>\n

Hiring a bunch of people in a bunch of different states\u2014when you really don\u2019t need to\u2014is the easiest \u201cbig\u201d mistake you want to avoid.<\/p>\n

By the way? If you\u2019ve allowed your employees to set up camp in a bunch of different states? You\u2019re not alone. Lots of small businesses end up doing this before they realize that this is a mistake.<\/p>\n

Multistate Taxation\u00a0Tip #2: No Accidental Ownership of Property<\/h2>\n

While we\u2019re on the subject of tripwires that cause nexus, let me also point out that you don\u2019t want your business to own property (or to rent property) in other states unless you really really<\/em> need that property in that other state.<\/p>\n

By the way,\u00a0if you\u2019ve already got\u00a0people and property scattered over a bunch of states, you can work to corral these people and the property into your home state or into a smaller set of states over time. If some year you don\u2019t have payroll or property in state, you probably won\u2019t have nexus.<\/p>\n

Note:<\/strong> You can\u2019t avoid nexus in your home state where you operate. So you\u2019re not adding a state tax return or incurring additional state taxes by moving people or property\u00a0to your state.<\/p>\n

Multistate Taxation\u00a0Tip #3: Use Public Law 86-272<\/h2>\n

If you\u2019re selling tangible property in other states, you want to be sure that your activities and any payroll in those other states is protected by public law 86-272.<\/p>\n

As I noted in last week\u2019s blog post, if someone (you or an employee) only solicits for orders to sell tangible personal property, that protects you from income taxes in that state. So, if you have some employee who works half time on this \u201cmere solicitation\u201d and then half time doing accounting, what you should consider doing is moving that accounting work onto somewhere else\u2019s plate who works in your home state.<\/p>\n

Multistate Taxation\u00a0Tip #4: Work the Apportionment Formulas<\/h2>\n

If your operation produces the same multistate footprint year after year, you may want to think about rearranging your business\u2019s operations so that the states\u2019 various apportionment formulas produce a different, lower result.<\/p>\n

If you operate in states that weight payroll and property, for example, you could work to stick all of your payroll and property into the state with the lowest tax rate. Or if you can\u2019t stick all of your property and property into the state with the lowest tax rate, you can try sticking more of your payroll and property there.<\/p>\n

Multistate Taxation\u00a0Tip #5: Consider Low-Tax and Zero-Tax States<\/h2>\n

Related to the tip about working the apportionment formula, you ought to at least consider the option of intentionally moving your residency and your firm\u2019s base to a low-tax or a no-income tax state.<\/p>\n

But keep in mind\u2014and sorry if this is obvious\u2014that all states are going to tax businesses in one way if not another. Washington state, for example, doesn\u2019t levy income taxes on businesses or individuals. But Washington State does hit businesses with an excise tax that runs roughly between .5% and 1.5% of revenue.<\/p>\n

Dumping a state with a high income tax rate and moving someplace like Washington State might make sense for some firms to consider\u2026 and other firms would only see their state tax burden rise.<\/p>\n

Note:<\/strong> Washington State service businesses pay the 1.5% state excise tax. Most other businesses pay around a .5% state excise tax on revenues.<\/p>\n

Multistate Taxation\u00a0Tip #6: Exit Low Profit High Cost States<\/h2>\n

This is a little negative, but let me just say here that some states (surely intentionally) make it nearly impossible for out-of-state small businesses to profitably operate within their borders.<\/p>\n

If you encounter a situation like this, make sure the optimal solution isn\u2019t simply to leave the state and cede any prospective customers and clients residing there to local firms.<\/p>\n

Multistate Taxation\u00a0Tip #7: Do Proactively Comply with State Tax Laws<\/h2>\n

A final tip: You really do want to proactively comply with any state tax laws especially if you\u2019ve got more than a minimal presence, are particularly visible, or have any excise tax liability. (Sales tax is an example of an excise tax.)<\/p>\n

The state of limitations doesn\u2019t begin to toll (or run out) until after you file your tax returns. Accordingly, if you never file tax returns in some state in which you\u2019ve got nexus, you\u2019re leaving yourself with a ticking time bomb.<\/p>\n","protected":false},"excerpt":{"rendered":"

Last week\u2019s blog post talked about how multistate taxation works and got into some of the nitty gritty details of nexus, public law 86-272 and then the typical multistate apportionment formulas. For purposes of this blog post, I\u2019m going to assume that you\u2019ve either read that post or know about this stuff. What we\u2019re going […]<\/p>\n","protected":false},"author":1,"featured_media":3781,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[6,17,12],"tags":[],"class_list":{"0":"post-3777","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business-taxes","8":"category-corporate-taxation","9":"category-management","10":"entry"},"yoast_head":"\nMultistate Taxation: A Short Primer on Avoiding Costs and Hassles<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/evergreensmallbusiness.com\/multistate-taxation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Multistate Taxation: Avoiding Costs and Hassles\" \/>\n<meta property=\"og:description\" content=\"Last week\u2019s blog post talked about how multistate taxation works and got into some of the nitty gritty details of nexus, public law 86-272 and then the typical multistate apportionment formulas. 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